Last night I was visited by three ghosts.
The first called herself the ghost of social investment past.
She showed me a small group of pioneering organisations in the mid 2000s, such as CAF Venturesome, Big Issue Invest and Futurebuilders, seeking to make finance available to charities and social enterprises to help them grow or manage rocky cash flows.
I saw a charity sector that was pretty sceptical about the idea of taking on a loan. For many it felt a little too commercial and far too risky.
But as we continued on our journey towards the present we saw more examples of how the tool could work for different organisations, and lots of political support for the idea. This led to the creation of Big Society Capital with dormant bank accounts, a tax break for social investment and support for a range of capacity-building initiatives. These in turn led to a steady increase in the flow of capital, which was expecting to achieve financial impact.
But was this all the right sort of money? Most of the investors were expecting to get their money back with a modest return, as well as achieve social impact. This meant that taking significant risks, or making very small loans, wasn’t always easy – and even as more charities became open to the idea of taking on loans, there often wasn’t the right shape of money to meet their need.
The second ghost called himself the ghost of social investment present.
He showed me a charity and social enterprise sector in the midst of significant change. Many organisations were struggling with declining income streams and rising demand for their services. Diversifying income was a top priority, but knowledge of how and why taking on a loan might help achieve that was patchy. Some organisations were successfully growing their enterprise activity, but many more were in the very early stages of thinking how to do so.
I saw more blended finance funds, which were able to balance the needs of different investors to be able to offer the sorts of loans the sector needs most. I saw some pioneering foundations, such as the Big Lottery Fund, which were prepared to use their grant money to enable this to happen, but also many more grant-makers that were yet to be convinced of the value of this approach.
He showed me more and more capital-seeking impact, but often with unrealistic assumptions about how impact and financial return could be married. Charities and social enterprises were not seen as necessary to delivering this impact, and profit-with-purpose businesses were claiming that mantle.
Finally I was visited by a third ghost, the ghost of social investment future.
She showed me a potential future in which impact investing had boomed, but was far away from meeting the needs of charities and social enterprises.
The needs of capital to be deployed at scale and achieve market-rate returns meant that impact businesses had grown quickly and were increasingly sophisticated about communicating their impact. But critics said their work was less likely to reach the hardest-to-help people in society and had led to further polarisation.
Sources of grant subsidy to provide blended finance models had dried up, meaning that higher-risk small-scale finance was hard to come by. Charities and social enterprises were struggling to build resilient enterprise models and their appeals to government were falling on deaf ears. Nor had the sector mastered the management of impact, allowing impact business to ape its language.
I awoke in a daze, but with a new zeal to find an alternative future. As I finished my second coffee it became increasingly clear.
We must stop confusing charities and social enterprises by saying that social investment is the answer. Rather, we should put our energy into supporting the development of enterprise activity to help the sector become increasingly resilient, because a resilient sector is critical to building a society with less disadvantage.
Access to the right sort of finance will help some of those charities to further build new sources of trading income, but so will a much greater knowledge base about which enterprise models actually work in the sector to deliver profound impact and generate a surplus.
More blended funds will be needed to make that happen over the longer term. The evidence of the value of grant funds being used in this way must continue to be built, so that the growth in capital looking for impact can be of most use for charities and social enterprises.
Finally, we must help charities and social enterprises manage and demonstrate their impact as clearly as possible so that their distinctive contribution is clear for all to see.
Seb Elsworth is the chief executive of Access, a foundation that helps charities and social enterprises access social investment